Strong Freight Markets Deter Ship Recycling in Q3, Says GMS

Aging vessels remained in service throughout the third quarter of 2026, driven by robust freight markets and attractive secondhand values, according to a recent market review by GMS, a prominent cash buyer of ships for recycling. This trend occurred despite an increase in scrap prices and strong demand from recycling yards.

At the beginning of Q3, the ship recycling market appeared poised for an increase in demolition activity. GMS reported that approximately 550 merchant vessels, including around 200 bulk carriers, were being tracked for potential recycling. Recycling yards in major South Asian markets also indicated available capacity and an appetite for tonnage.

However, the anticipated influx of vessels did not materialise. GMS noted that strengthening freight markets, healthy secondhand values, and continued employment opportunities provided limited incentive for owners to sell vessels for recycling. Consequently, the quarter concluded with a market characterised by strong demand from recyclers but a shortage of willing sellers.

Market Dynamics and Owner Incentives

The GMS report highlights that recycling yards are not solely competing against each other for vessels; they are also vying with the potential earnings owners can achieve by keeping ships in operation. This competition intensified during Q3.

By early September, the Baltic Dry Index reached 3,488, its highest point since October 2021, providing a strong commercial rationale for older dry bulk vessels to continue trading. The tanker market also became increasingly lucrative later in the quarter, with GMS reporting some Very Large Crude Carrier (VLCC) employment rates exceeding $1 million per day by Week 39. At these earnings levels, even substantially higher recycling prices struggled to persuade owners to scrap vessels capable of generating significant revenue.

Owners were reported to be evaluating recycling offers against a broader range of alternatives, including freight earnings, secondhand sale opportunities, remaining vessel life, route risks, and compliance costs. Regulatory and compliance requirements, such as sanctions exposure, ownership history, registries, and previous trading activity, are also increasingly influencing which facilities can handle a vessel and the value that can be achieved, meaning the highest headline offer may not always be the most viable.

Rising Scrap Prices Amidst Scarcity

Despite the limited vessel supply, recycling prices experienced significant increases during the quarter. At the start of Q3, Bangladesh led the market with dry bulk values between approximately $458 and $463 per light displacement ton (LDT), and tanker values ranging from $478 to $483 per LDT.

By Week 39, Pakistan had become the leader in the South Asian market, with dry bulk values around $510 per LDT and tanker values around $530 per LDT. Bangladesh followed at approximately $500 and $520 per LDT for dry and tanker tonnage respectively, while India reached about $465 per LDT for dry tonnage and $485 for tankers.

The scarcity of vessels was particularly evident in Pakistan. Gadani recyclers initially trailed Bangladesh but progressively raised their bids as available tonnage tightened. By Week 34, GMS indications for dry bulkers climbed as high as $515 to $520 per LDT, and $535 to $540 for tankers. These increases occurred before sufficient vessels reached the yards, leading recyclers to bid against each other for future candidates. Prices later eased as previously purchased vessels arrived, although Pakistan maintained its leading pricing position at the quarter's end.

India's market also developed into two distinct segments, according to GMS. While Alang generally remained behind Pakistan and Bangladesh for conventional steel tonnage, specialist vessels, including reefers, gas carriers, passenger ships, and those with substantial non-ferrous content, could attract different buying responses.

Outlook for Recycling Supply

GMS anticipates that recycling supply will remain tight into the fourth quarter, particularly if strong vessel earnings persist, especially for employment linked to the Strait of Hormuz. However, these delayed recycling decisions could be creating a larger pool of aging tonnage that will eventually require removal from the fleet.

GMS suggests that if freight earnings normalise, secondhand liquidity weakens, or employment opportunities narrow, some of this deferred supply could enter recycling markets over a much shorter timeframe. For now, ship recyclers face a situation of strong demand and rising prices, yet an insufficient number of ships available for purchase.